An IP insurance policy is only useful if its terms stand up to scrutiny. We look at the key points to consider when buying coverage, with insights from Papula-Nevinpat IP Legal Advisor Matti Kauppi.
IP insurance can help companies manage the costs of disputes around patents, trademarks, copyrights and other IP rights.
At its most basic level, IP insurance may cover the costs of defending against third-party infringement claims. More comprehensive policies can also cover damages, settlements, and part of the counterparty’s litigation costs.
Advanced policies even extend to the costs of enforcing IP rights against third parties. This level of protection can be relevant for companies that actively license technology or otherwise rely heavily on intellectual property as a business asset.
Like any insurance product, IP insurance is designed to cover unforeseen risks rather than known problems. Once a company has received a cease-and-desist letter or otherwise becomes aware of a specific IP conflict, obtaining insurance for that risk becomes difficult or impossible.
“You cannot insure a house that is already on fire,” says Kauppi. “Treat insurance as preventive risk management. Negotiate the policy and put the cover in place before any disputes emerge.”
Show robust IP management and map indemnities
Before issuing a policy, IP insurers often require a detailed assessment of the applicant’s IP management practices. Among other things, they want to see who is responsible for the IP and how the company monitors third parties. A history of IP disputes or litigation can affect how the insurer assesses the company’s risk.
“The better you have considered the things that may happen in your business with respect to IP, the easier it is to obtain insurance. The risk for the insurance company is much smaller if you have done your homework,” Kauppi notes.
IP indemnities provide a case in point. These are contractual commitments whereby a supplier agrees to protect a customer against third-party IP infringement claims relating to a supplied product, component or technology. Such provisions are common in commercial agreements.
“Indemnity obligations are exactly the type of expanded liability that insurers often scrutinise or exclude. Companies should review their insurance arrangements and indemnity commitments side-by-side to ensure there are no unexpected gaps in coverage,” Kauppi emphasises.
IP indemnities can work in both directions. An indemnity received from one of your suppliers may provide your company with an additional layer of protection, but only if the clause covers the relevant risk and that supplier is financially able to meet the obligation.
Do not accept standard policies – negotiate terms and costs
Standard IP insurance policies contain provisions that significantly affect whether coverage is available when needed. For example, some policies may exclude the costs of technical and legal reviews. Others may deny coverage if the IP has not been actively enforced in the past, or if a dispute arises in a country where the policyholder does not have clear IP rights.
“No standard IP insurance contract works for every customer. Always review and negotiate the terms and conditions. My experience is that insurance companies are open to discussion. Exclusions are negotiation starting points – not fixed limits,” says Kauppi.
Some policies may require an insured company to obtain approval before launching offensive litigation, pursuing interim measures, or agreeing to settlements. These requirements can become problematic if approvals take weeks to obtain.
“Before approving offensive actions, your insurance company will usually want an independent opinion on the suspected infringement and the estimated chances of success. You will certainly need at least prior written approval from the insurer,” says Kauppi.
The cost of IP insurance varies based on factors such as the extent of coverage and geographical scope, as well as a company’s claims history and internal IP practices. Kauppi says ballpark figures for defensive coverage in the EU would be an annual premium of around EUR 10,000, with a EUR 100,000 deductible and a EUR 1 million limit of liability.
“The relationship between these numbers may change, but this pattern is a good rule of thumb. In the end, the cost and the extent of coverage depend on your negotiating power and the quality of your own actions to proactively manage your IP,” he concludes.
You can watch the recording of Matti Kauppi’s webinar, “Managing IP risks – The role of IP insurance,” here.